The Co-op is embarking on an extensive rebrand to remind people its membership is core to the business but can a renewed focus on community quicken its return to profitability following testing times?
“We are on the verge of creating a new Co-op economy,” was how chairman Allan Leighton set the backdrop for changes he hopes will repair its battered reputation. Unifying the radical revamp is a desire to get the co-operative to its core ethical values, the clearest indication of which is the revived ‘cloverleaf’ logo 30 years after it was shelved. To show the rebrand is more than just a logo. the company is retraining its 70,000 strong workforce on a “back to being Co-op programme”.
It’s a massive commitment for a business pushing for profitability and yet it’s clear drastic measures were needed for it to stand a chance of reaching its ambitious five-year ambition growth plan. After all, community is what the Co-op is about and in tough times the default (and safe) option for many businesses is to return to their roots in order to steady the ship. Pre-tax profit for the Co-op plummeted 81 per cent in 2015 to £23m after the previous year's figures were inflated by the £121m it gained from the sale of its farms and pharmacies arms.
"Big business is often accused of taking money out of communities – we are putting it back in as we champion a better way of doing business for our members and their communities,” proclaimed Richard Pennycook, chief executive of the Co-op.
What this means for the Co-op’s eight million members is more attention; members will be given a five per cent discount on own-brand products and services alongside the guarantee that one per cent of the money they spend at its businesses will go straight back into helping the local community and its suppliers. It gets better for members, who are now being offered an annual dividend - which were suspended in 2014 when it posted huge losses.
It’s a savvy move from the Co-op at what is one of the most turbulent periods in the grocery sector. Consumers have become increasingly disenchanted with the confusing price promotions and bloated offerings of the ‘Big Four’ grocers – Tesco, Asda, Morrisons and Sainsbury’s – and are instead of turning in their droves to the simple, cheap and altogether more streamlined experiences of Aldi and Lidl.
Unlike its larger peers, the Co-op remains in a strong position thanks in part to the convenience store model it has long championed. Add to that an aggressive pricing strategy that saw it pump £150m into price cuts last year and the latest flurry of changes could see it benefit from the disruption within retail albeit at the likely expense of becoming profitable sooner rather than later.
But, aside from price “shoppers are being driven more by ethical values,” according to retail analyst, Graham Soult.
“Arguably, people see Tesco as a big corporate that it destroys the local community [Tesco has been heavily damaged by the accounting scandal of 2014 which shed an unwelcomed light on how it works with local supplies],” he continued. “But by [rebranding and reappraising its membership scheme], although it’s not necessarily doing anything different, Co-op is making its proposition much clearer...It’s telling people that it’s local, independent, and cares and is not doing the stuff other corporates are doing.”
Time will tell if this tactic pays off. A glance at the fashion industry shows that people are increasingly interested in the provenance of their products. However, it’s a mindset yet to fully take hold of the grocery sector where it remains true that the retailer with the cheapest basket of goods is coming out on top.
Regardless, the Co-op’s immediate hurdle is getting the message out there to today’s consumer. Currently, around a third of the the company's membership accounts are not active, a sign that many have become disengaged with the brand, its values and promises.
“It’s about getting back to what made it great. And therein lies the challenge. How many people will recognise it and remember Co-op’s good old days? They’re going to have to communicate that,” said Simon Hathway, global head of retail experience at Cheil Worldwide.
A marketing campaign will likely build on what it tried to establish with its Christmas push and show that it is a local grocer at the heart of the community.
Co-op’s Pennycook was optimistic on the future of the business, which he said was back "in calmer waters" after it reported a £23m profit.